Green Alpha Advisors Identifies Six Key Trends Driving Sustainable and Impact Investing
BOULDER, CO—July 09, 2018—Green Alpha Advisors, an asset manager specializing in innovation-driven, fossil fuel free equity portfolios, has identified six key trends that will influence sustainable and impact investing in the second half of 2018 and beyond.
Investors have been on a see-saw thus far in 2018, and sustainability-focused investors have been no exception. Tariffs, market surprises and global energy policies have driven some uncertainty in green investing sectors, while technology breakthroughs and state-driven actions in California and elsewhere have partly counterbalanced the Trump Administration’s most extreme measures. Look for this dynamic to continue, which could result in spikes of volatility – and potential buying opportunities for long-term investors.
“The first half of 2018 has been some of the most volatile market activity in recent history. The unpredictability of the Trump Administration has led to a lot of near-term market anxiety,” said Garvin Jabusch, Green Alpha Chief Investment Officer. “Our response has been to focus on the long-term, remaining invested in multi-year growth trends that will ultimately be impacted less by short-term policy machinations and more by innovation.”
Key trends for sustainable and impact investors include:
Gender and diversity investing elevated: Gender and diversity investing is one of the fast-growing categories of sustainable and impact investing, with public equity assets in these strategies growing from $100 million in 2014 to more than $900 million in 2017. One key reason investors find these firms so appealing: research demonstrates that diverse management teams outperform homogeneous teams in a variety of material ways, from creative problem solving to executing on short- and long-term goals.
Infrastructure inflection point: Traditional infrastructure—like bridges, roads, water mains, and water treatment—desperately need upgrades. Companies that supply and utilize waste-to-value materials, like recycled steel, are meeting critical infrastructure and sustainability needs. A tech-driven economy also requires infrastructure to support the twenty first century’s most precious commodity: data. Global fiber networks, wireless networks (including 5G), cloud services, and satellite communications (including internet) will continue to be key areas to watch.
U.S. China solar flare-up: China’s recently announced changes to national solar policies have rocked the global PV market. With the resulting oversupply of panels, prices may fall 35% or further–more than nixing the impact of U.S. trade tariffs. Stock prices of panel manufacturers are following suit, offering some fantastic buying opportunities for investors. Adding to the momentum, the US Internal Revenue Service handed down new guidance allowing solar developers to claim a 30% investment tax credit on any project they begin by the end of 2019 and complete by 2023. Since the US administration’s section 201 tariff on panels sunsets in February 2022, this means developers can both enjoy their ITC tax credit and avoid nearly all tariffs on imported panels. Long term, solar’s prospects shine bright.
Battery tech fully charged: With their ability to power electric vehicles and offer dependable electricity storage, batteries are exponentially growing. Storage can provide a critical service during sudden electricity demand peaks and offers stability in the presence of intermittent renewable energy. Due to improvements in technology and increases in scale of battery production at an increasing number of companies around the world, the price of lithium-ion battery storage has fallen from US$1,000 per kilowatt hour of storage (kWh) in 2010 to US$209 per kWh in 2017, according to Bloomberg New Energy Finance. That price is projected to fall to less than US$100 per kWh by 2025, making both grid storage and EVs much less expensive, potentially catalyzing explosive demand.
Is genomics investment-worthy? Genomics technology continues to achieve significant medical and scientific breakthroughs. For investors, new opportunities and risks are unfolding in diagnostics, treatment and direct IP resulting from the development of gene-editing techniques. Although potentially transformative for medicine and human well-being, the industry faces some political headwinds and both questions and backing from sustainable and impact investors.
Information asymmetry and climate change investing: As special interests drive the climate discussion astray and sustainability-driving technologies continue to rapidly progress, the ‘climate change sector’ remains a ripe area for value investors. Reality is always far more complicated than equity markets and assimilate, and climate information is certainly no exception. For those willing to do the research and assimilate underutilized data, such market inefficiencies will continue to generate opportunity.
“We’re still in the first inning of this global economic shift toward sustainability, but the pieces are coming together almost faster than we can keep up with them,” said Jeremy Deems, Green Alpha Chief Financial Officer. “It’s times like these where you have to ask: are you primarily invested in the legacy economy and ‘what was,’ or are you preserving your client’s purchasing power by investing in ‘what’s next’?”
About Green Alpha Advisors, LLC
Green Alpha’s investment philosophy is straight forward: don’t invest in companies that cause global systemic risks; instead, invest in the solutions. That’s investing in the Next Economy.
Green Alpha Advisors is led by three pioneering executives who each have over 20 years of asset management experience. Green Alpha has been redefining asset management since 2007 by investing in the Next Economy – an indefinitely thriving economy driven by companies that are developing innovative solutions to major systemic risks, like climate change, resource scarcity and widening inequality. As these threats continue to materialize and risk-mitigating solutions rapidly develop, the economy of the next decade is unlikely to look like that of the past. It’s time to advance beyond backward-looking, 20th century views of portfolio risks and invest in what’s next. Green Alpha manages $125 million for individuals, advisors, and institutions.
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